Ladies and gentlemen, good day, and welcome to Cholamandalam Investment and Finance Company Limited Q4 FY 2024 earnings conference call hosted by Kotak Securities. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities. Thank you, and over to you, sir.
Thank you. Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. To discuss the Q4 performance of Chola and share industry and business updates, we have with us the senior management today. I welcome Mr. Vellayan Subbiah, Chairman and Non-Executive Director, Mr. Ravindra Kundu, Executive Director, and Mr. Arul Selvan, President and CFO. I would now like to hand over the call to Vellayan for his opening comments, after which we'll take the Q&A.
Nischint, thank you, and good morning, everybody. So we'll just go through the key financial results for the quarter and for the year ended March 31st, 2024. The disbursements were at INR 24,784 crore for the quarter, which is up by 18%, and INR 88,725 crore for the year, which is up by 33%. The total AUM stood at INR 1,53,718 crore, which is up by 36% year-on-year. The net income for the quarter was at INR 2,913 crore, which is up by 41%, and INR 9,986 crore for the year, which is up by 38%.
The PAT was at INR 1,058 crore for the quarter, which is up by 24%, and INR 3,423 crore for the year, which is up by 28%. So, in terms of our performance, we've delivered the best ever disbursements, collections and profitability in Q4, FY 2024. Vehicle Finance grew by 6%, aided by, steady growth. LAP grew by 55%, and Home Loans grew by 24%, driven by geographical expansion into Tier 3 and Tier 4, locations. Disbursement growth in the other businesses was at 24%. Aggregate disbursements were at INR 24,784 crore, as against INR 21,020 crore in Q4 FY 2023, which is a growth of 18%. And like I said, for the year, the growth has been 33%.
Vehicle Finance disbursements were at INR 12,962 crores in Q4 FY 2024, as against INR 12,190 crores, which is a growth of 6%. Disbursements for the year were at INR 48,348 crores, as against INR 39,699 crores, which is a growth of 22%. The Loan Against Property business disbursed INR 4,273 crores in the quarter, as against INR 2,762 crores in Q4 FY 2023, which is a growth of 55%. Disbursements for the year were at INR 13,554 crores, as against INR 9,299 crores, which is a growth of 46%. Home Loans disbursed INR 1,747 crores in Q4, as against INR 1,405 crores, which is a growth of 24%.
And, for the year, disbursements were at INR 6,362 crores, as against INR 3,830 crores, which is a growth of 66%. SME disbursed INR 2,136 crores in the quarter, which is a 2% growth, and disbursements for the year were at INR 8,106 crores, which is a 27%. Consumer and Small Enterprise Loans disbursed INR 3,301 crores in the quarter, as against INR 2,364 crores in the same quarter last year, which is a growth of 40%. And disbursements for FY 2023-2024 were at INR 11,281 crores, which is a growth of 64% over the INR 6,865 crores in FY 2023-2024.
Secured Business and Personal Loans has disbursed INR 366 crore in the quarter, as against INR 196 crore, which is a growth of 87%. For the year, disbursements were INR 1,074 crore, which is a growth of 138% over INR 451 crore in FY 2023-2024. The AUM as of March 31st, 2024, stood at INR 153,718 crore, and that's a growth of 36%. PBT growth in Q4 was at 24%, and for the year, PBT growth was at 27%. PBT ROA for the quarter was at 3.9%, and PBT ROA for the year was at 3.4%. ROE for the year was maintained at 20.6%.
The company continues to hold a strong liquidity position, with INR 7,899 crore as cash balance as of the end of March 2024, including INR 1,500 crore each invested in G-Sec/T-Bill and INR 765 crore invested in STRIPS shown under investments, w ith a total liquidity position of INR 8,315 crore, including undrawn sanction lines. ALM is comfortable with no negative cumulative mismatches across all time buckets as per regulatory norm. The consolidated PBT for the quarter was at INR 1,428 crore, as against INR 1,163 crore, with a growth of 23%, and for the year, INR 4,605 crore as against INR 3,615 crore, which is a growth of 27%.
In terms of Asset Quality, Stage 3 reduced to 2.48% as of March 2024, from 2.82% at the end of December 2023. So we've continued our improving trajectory here. GNPA, as per RBI norms, reduced to 3.54% as of March 2024, as against 3.92% in December 2023. And NNPA dropped to 2.32% as against 2.56% on December 2023. NNPA is below the threshold of 6% prescribed by RBI as a threshold for PCA.
In terms of Capital Adequacy, the CAR of the company as of March 31st, 2024, was at 18.57%, as against the regulatory requirement of 15%, and Tier 1 capital was at 15.1%. The Board of Directors of the company has recommended a final dividend of INR 0.70 per share, which is 35% on the equity shares of the company, subject to the approval of the members of the company at the ensuing Annual General Meeting. This is in addition to the interim dividend of INR 1.30 per share for the financial year 2023-2024, declared by the company on January 25th, 2024.
The Board of Directors of Cholamandalam Home Finance have also approved an equity infusion of INR 25 crore in Cholamandalam Securities, both of which are wholly owned subsidiaries, subject to the approval of the regulators. Nischint, I'll stop with those comments, and we'll be happy to turn it over to you. Thank you.
Yes. Yeah, let's start the Q&A session. Yeah.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from question queue, you may press star and two. Participants are requested to use handset while asking the question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to strictly two questions per participant. Should you have a follow-up question, we request you to rejoin the question queue. The first question is from the line of Avinash Singh from Emkay Global. Please go ahead.
Yeah, hi. Good morning. Thanks for the opportunity. Two questions. First, on the disbursement and AUM growth outlook for FY 2025, can you just please help with some sort of a break, you know, a breakdown, among the different segments? That's one. And second, if you can also help with the balance transfer trends across your different products, that would be helpful. Thanks.
So disbursement growth will be 20%-25%, and the AUM will be 25%-30%. You know, best case scenario, 30%, but in worst case scenario, we'll do 25%. The balance transfer is really particularly pertaining to LAP-
Maybe a little bit Home Loan, but Home Loan, we don't do much balance transfer.
So 45% of, generally of our disbursement, he's asking more about the disbursement. So 45% of our disbursement comes from balance transfers.
Yeah.
What sort of a transfer you are seeing, I mean, the loan going out of your portfolio, maybe because of...?
Interestingly, out of the closures, the about 40% are balance transfers.
Okay.
Out of the total closures.
If you are asking the segmental growth for the businesses, we are giving cumulative for the Chola in terms of disbursement and AUM growth. As of now, segmental disbursement and AUM growth, we are not talking.
Yeah, and I asked that because, I mean, on the CV side, there is kind of a bit of a slowdown, that's sort of expected. So then and of course, now, incrementally, I mean, over the years, your non-vehicle portfolio also has gained size. And that is where, I mean, sort of, we are trying to get an idea that, okay, if these vehicles were to slow down, and then, of course, on a larger base, how much sort of this can pull it off, the non-vehicle. And that is why sort of any color on that, you know, whether it's LAP or any sort of a new product you are thinking of, that should be helpful.
On the contrary, the vehicle numbers, CV numbers for the month of April, we got it, cumulative number, published or data from the manufacturer for the April, is actually looking better. So, if you take that number as the industry number, obviously, what we are committing or talking for 20% disbursement, including the new business growth and the mix of the disbursement and our reach in the country, because today we are present in 1,300 plus branches and 600 RLs, so put together 1,900 touchpoints are available for us. And we are not only focusing commercial vehicle, but we are also focusing passenger vehicle, construction equipment, tractor, two-wheeler, three-wheeler, all used vehicle or commercial vehicle, passenger vehicle, tractor and new tractor and construction equipment.
Therefore, we are quite comfortable that we can deliver 20% growth in vehicles.
Yeah. Quickly, last one, I mean, if, because you are now into all, retailing to passenger vehicles, and a lot of your passenger vehicles typically will be entry-level one. So what kind of a trend you are seeing in the passenger vehicles entry-level segment? Because that has been under stress for quite some time.
It's been good only. For last year, it was actually a double-digit growth in passenger cars, and entry-level cars, especially Tier 4, Tier 5 towns, also started in staying, seeing the sale. So that is helping us to get the number at our rate, because we are not into salaried jobs, which is being funded by the banks mostly. The self-employed or customers are buying entry-level cars in Tier 2, Tier 3, Tier 4 towns are actually our customers. They are doing that.
Okay, helpful. Thank you.
Thank you.
Thank you.
Next question is from the line of Dhaval from DSP. Please go ahead.
Yeah, thanks for the opportunity. Congrats on good performance. I just had two questions. First is on slide 67. Thanks for this additional disclosure on new business profitability. The question is, you know, on each of these subsegments, CSEL, SME, and SBPL, how do you see the normalized PBT ROA, you know, over the next couple of years? And specifically on CSEL, if you could talk about the net credit loss after FLDG, how does that stabilize in the next couple of years? So that's the first question, profitability of each of these businesses.
The second is on slide 18. You've given this new color-coded your last 15-year trajectory, and given this idea of new growth over the last couple of years. Should we expect on a more medium-term basis, the current growth trajectory that where we are, you know, over a period of time, that's the CAGR that one should think of, somewhere around 25 to 30-odd percent over the next few years? And just if you could give some perspective around that, that would be useful. Medium-term growth. Thanks.
Yeah. So let's start from CSEL . CSEL is at 2.9. You asked a good question, actually. I'm also asking Balraj to deliver more and more in terms of ROA. He's also committed to increase it. We don't want to disclose what target we have given it to Balraj, but definitely, we will go from 2.9, it will definitely go up. And in two years' time, we will reach the peak. So the opportunity to grow ROA will not get over in this year only. In next year also, we will further grow. In SME, the ROA growth opportunity is slightly less than CSEL . But Pankaj is also committing that next two years, he will be taking it up one by slowly. And SBPL is a great opportunity for us.
From 3.9, I mean, huge number we can create. I mean, that is one of the highest ROA division going to be in the, in the way, in the Chola. So that's what we are committing, Ashish is committing to me. I'm not committing to you. We are expecting that we will be touching good number in two years' time. Coming to the NCL line, NCL line, 4.4 of CSEL, is actually 3.4 or less than 3.4. And, as we basically, we also said that we have already decided, defined, what would be our strategy in partnership. We have defined profile partners who are doing very well. So including, that, the performance of this CSEL partnership will further improve and NCL will go down.
So the ROA increase, expected from two line. When the expenses will go down, the losses will improve, and that is applicable for all SME and SBPL also.
Yes. And the second question, broadly, yes, is kind of, you know, is the answer here.
Great! Thanks, and all the best.
Thank you.
Thank you.
Thank you. Next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.
Yeah, thanks for taking my question, and congratulations on a good quarter. I just have one question. Is there any one-off in the OpEx line item? And also, going forward, if you could just give us some color as to by when can we expect the operating leverage to kick in, given that we are anticipating good asset growth, how should we look at this OpEx line item going forward? Thanks.
Yeah, see, in Q4, generally, a lot of catching up happens with regard to CSR and et cetera. So in Q4 and then we also, Q4 being a, you know, busiest of the quarters, in, I mean, you need to provide for it, incremental incentives, et cetera. So such one-off expenses happens in every Q4, likewise, this time also. And we stick to our original plan that we should be at the 3% to aim at the OpEx line. We are working towards it. Yeah, for the full year, we missed it by 10 basis points this year, but I think next year we should be there. We, we still work at 3% of keeping it below 3%.
Okay, perfect. That's helpful. Thank you, and wish you good luck.
Thank you.
Thanks a lot.
Thank you. Next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah, good morning, everyone. Thank you so much. And sir, congratulations on another good quarter. And again, thank you for providing the enhanced disclosures on the three newer businesses. So I just wanted to kind of take forward what you commented on OpEx. So very clearly, I mean, if I look at the fourth quarter, employee expenses up almost 100% year-over-year, you just explained there are some annual incentives also. So, I mean, just wanted to understand, the annual incentives are always there in the fourth quarter, or we kind of keep providing for it in all four quarters? And maybe a related question here on OpEx is, I mean, very clearly, some of the newer businesses, because we were in investment mode over the last two years, were a drag, I would say.
But now, how do you see economies of scale from the newer businesses, especially on the OpEx side? Arul sir, you already guided that you want to stick to that 3% OpEx to AUM, but just some more color there will be helpful.
[Foreign language] The person you are speaking... Ladies and gentlemen, the management line has been disconnected. Please stay connected till we connect the management. Thank you. Ladies and gentlemen, the management line has been connected back.
Good.
Okay. So,
We'll respond to your question.
Abhijit, can you repeat the question?
Yes, I think, I mean, it was more on the OpEx again. Arul sir, you already guided that there were some annual incentives in CSR expenses, and that for the next year also, we want to stick to a 3% OpEx to AUM. Just wanted to understand, a lot of the drive on the OpEx, especially in employee expenses, could also have been coming from the newer businesses, given that we are expanding it to more number of branches. Just wanted to understand, I mean, for how long will they remain in this investment mode in the newer businesses? What is the thought process there? Do we want to offer these three products, CSEL, SME, and SBPL, across all our branches? Is what I was just trying to understand. Just some more color there on the OpEx.
Abhijit, I mentioned that, you know, the ROA expansion for CSEL, SME, SBPL is going to come majorly from the OpEx reduction, because their new base is going up, and the productivity of the people who've been recruited in last two years have started delivering more. We have seen that Q4, that they have delivered little better ROA than annual ROA. This is going to be continued, because the branches are set. I'm talking more from the traditional point of view, because CSEL traditional, they opened up branches, and now they are delivering close to INR 600 crore per month. That is going to go up with the same manpower.
They're going to increase my, definitely some more branches, but those branches will have a, you know, the similar concept of Vehicle Finance, where we are opening up RLs w ith the lesser manpower and then expanding it after achieving the threshold of the volume. So that way, expenses will be controlled, and it will go down from 5.1 of CSEL, to, I mean, we are expecting reduction, in a phased manner. Two years, it should come down to, at least good number. And same SME. SME, as actually we see that SME, their ROE, their expenses are 2.3%, which is higher than the lab, but their customers are higher than the LAP customers. So obviously, they should deliver lower OpEx than LAP.
That is not their target, so they are doing it. SBPL also, to see that 13.4%, it will come down. So in spite of we expanding in all three, divisions, we will be reducing our OpEx as well, and that's a main important thing, for increasing the ROA in this business.
Got it. Thank you. So just one last question. Maybe, sorry, two questions that I had. One is sir, I mean, we've been hearing that, the last 2-3 months, right, I mean, elections have had some slowdown in, particularly in the vehicle segment in terms of demand and activity. So, I mean, do you expect that, I mean, post-elections, post-budget presentation, maybe by August, September, when we kind of start the festive period, demand can start recovering? That's the first question. And the second question that I had, and the third question I had was, or to Arul sir again. Sir, I mean, cost of borrowings look like they are peaking out. Margins are stable for the last couple of quarters. How are we thinking about cost of borrowings and margins now?
So from demand side, as you said, is right. There are two things happening, you know. One is the elections are happening till May end and June only, we will get a full three month to start working in fullest capacity across the country. Second is that it is Q1. So both put together, there is very, very slight slowdown in the first quarter. But as far as vehicle industry is concerned, in the first month, in the month of April, we see that they have delivered better numbers than last year. So last year, their growth was negative. This year, they started with 80% growth. Across other product put together, the growth has been actually +20% in April month. So that is a 26% g rowth over previous April.
Previous April. So that is good news, because if at all it is a wholesale number, if the wholesale number is good, the retail number will happen better in the month of May and June, and our numbers are also in line with that. So... And this is only, new vehicle we are talking about. In addition to new vehicle, we have 34% used vehicle, we are doing it. New vehicle means new commercial vehicle, where the growth is 13%. New vehicle put together, all other segment is 26%.
It look like it is actually, you know, moving in the right direction. And as we mentioned, that, you know, the demand in terms of the commercial vehicle has been, at a lower side, even in this last financial also. And we have done better last year. That is because we are, our used vehicle business has gone up from 27% disbursement, portfolio mix to 34% disbursement mix, and high businesses like two-wheeler, three-wheeler also, we have done better. We will continue to do that, and that is the reason we are comfortable in delivering 20% disbursement growth and 25% AUM growth in Vehicle Finance. The growth will start looking better in the Q3 onwards.
With regard to cost of funds, see, the cost of funds, we will endeavor to hold it at this level. But you know, as we widen the borrower profile from banks to other sources like ECBs, there can be a slight increase, but we will continue our negotiations to keep it at this level. And hopefully by H2, as predicted or as expected, if there are reductions in the market, that should also flow through.
But it essentially means that, I mean, there is still that, that scope for a margin expansion, given that cost of borrowing, as you're suggesting, could stabilize or-
Or commit anything on margin expansions. We are back to the pre-COVID levels. I would say we should be happy there. As portfolio mix changes, as cost of funds, you know, benefit come through or not come through, accordingly, there will be marginal changes in the margin. But I don't see any, you know, large shifts happening .
But ROA level, we are expecting that. So 3.4, it can go up to 3.5.
3.5. Overall, across OpEx-
If you see that we have given 10 years data, where pre-COVID level, we were at 3.7%, where the cost of fund used to be 6.9%-7.1%. And that time, our income was 14.7%, so we are at 14.4%. So that income line has to go up. The income line will go up with the help of Vehicle Finance, which is actually a, you know, fixed rate, and we are continuously doing higher yield business the last one year. And this year we will see that the income will go up.
Got it. Sir, this is very, very useful. Thank you so much, and all the very best to you.
Thank you.
Thank you. Next question is from the line of Sandeep Jain from Baroda BNP Paribas Mutual Fund. Please go ahead.
Yeah, thanks, sir. Thanks for taking question. Just to, you know, addition to what Dhaval has asked about the new business, what kind of credit cost we are building in when we are, you know, kind of pricing, especially the SBPL and SME product? Because it looks like, the majority of the... Apart from the yield improvement, you see the year-on-year credit cost is declined. And as a thought process, how provision coverage will look like for this new business? It would be lower than the company overall provision coverage business, or you would like to have higher provision coverage on these two, three new businesses?
Yeah, see, these loan losses in the new businesses, you know, in SBPL, if you are asking, it will increase a bit over the years, but that would be more than offset by the savings in OpEx, as you were saying earlier. So SBPL is a slightly risky business, where the loan losses will be slightly higher. But this is the trend of the industry, but we will try to keep it lower. But with regard to the,
[Foreign language]
Provision coverage, we are now adopting a provisioning, you know, percentage with, you know, which is not really driven on the ECL model, because we don't have adequate data, past data to prove it. We have taken industry norms and built, you know, sufficient, incremental provisions over that to make sure that they are conservative. As we reach three years of full run of these businesses, we will start creating PD/LGDs for this based on our own experience.
So just to elaborate it more, if I look at the current provision coverage ratio of all this 2-3 new business, it is somewhere around range of, you know, kind of 33% for SME or 25% for, you know, SBPL kind of thing, right? The slide number 29, which shows. Yeah, so in terms of, you know, going ahead, probably when the ECL model has not developed, so just to understand the thought process, whether we would take it to somewhere around 50%-60%, and then the ECL model will develop, then we will see the what is the current thing which is happening. Because currently also, ECL model has not been developed, right?
Right. See, but that is why you see a difference in the provisioning for CSL, which is an unsecured business, where we have taken to 50%. And within the Stage 3, different provisioning numbers prevail, with regard to the aging of the, of the book, you know, even in CSEL. And SME is actually the most stable business. So we are providing, almost, 39%-40% out there, which is, which is, you know, as good as, you know, like a LAP or HL, where we are, we, we, we have a credit. It's better than LAP and, HL, because the customer profile is different. If you see that pyramid we have put out there in, I think slide number 12 or 13, you'll see that it is the-
... best quality customers out there in, in the space like that. SBPL, it will increase a bit. Right now, because it is, it is a very small number, and right now, the portfolio which is in Stage 3 is very, very small. It is reflecting like that. But as it moves up, it will increase, as I said earlier.
Okay, thanks.
Thank you.
Thank you. Next question is from the line of Alpesh Jatin Mehta from 360 ONE Asset Management. Please go ahead.
Yeah, hi, good morning, and thanks for the opportunity, and congrats for the good set of numbers. Can you hear me? Sorry.
Yeah, yeah, yeah. [audio distortion]
Okay. Okay, so just one clarification. There is a lot of confusion related to the growth numbers. So I think you-- we are talking about overall AUM growth of around 25%-30%, disbursement growth of 20%-25%. The vectors within the growth rate will change. Is that right?
Yeah, yeah.
Yeah, AUM growth around 25%, you keep it. Just keep it simple. There's not any band at all. You said 25%, right? Because as we go into Q1, Q2, and we know more, more clarity emerges on the monsoon and post elections, we can come with a little bit more specific numbers. We are always conservative. Yeah.
Okay. So looking at the current scenario, at least you are confident about 25% overall AUM?
Yes, correct.
Perfect. Okay. And, secondly, sir, this I see there has been a... We have done, during the quarter, large investments into a corporate office. So any rationale related to that, you can provide?
Yes, last, last purchase land.
Yeah, we purchased the land to build our own corporate office. We are actually—we, right now we are working out of more than four or five centers within Chennai itself. So we needed to bring all of them together. And I thought it would be a ... I mean, it was a general consensus among the management and the board to look for a big corporate office and build it up. It will take two, three years to complete the whole construction, but this is the first step towards that.
Okay, perfect. But at least it will not have any immediate, benefit on the P&L per se. Whatever benefit that will occur, that will come after two or three years.
Yeah, correct. It will happen once we move in, we will save some rent, but that would be the way it will be.
Okay. And just lastly, on the repayment rate, since we are talking about 20% disbursement and 25% AUM, that means the longer duration product concentration within the overall mix is increasing, and that is where you are confident that the repayment rate at the overall level will come. Something like a LAP and-
The LAP and HL are slightly longer tenure book. SBPL will also be a longer tenure book. CSEL is a much shorter tenure book. So amongst them, there will be some carry forward of the longer tenure [audio distortion].
Perfect. That answers my questions. Thank you so much, and all the best.
Thank you.
Thank you.
Thank you. Next question is from the line of Viral Shah from IIFL Securities. Please go ahead.
Yeah, thank you, and congratulations on a great set of numbers. Actually, I have two questions, and if the operator permits, I will add one more. But, so to begin with, you mentioned that the new business profitability will improve, right? And, but will it still be higher than the overall Company Level ROA? So right now, we have a PBT ROA for FY 2024 of 3.6%, whereas the new businesses are at 2.4%.
Yeah. It will improve. It will improve, because, again, as Ravi was saying, their OpEx should come down, and so there will be a reasonable shift in that, yeah.
Yeah, but on a weighted average basis, across the new, new businesses, it will be higher than the ROA of the overall.
Right. And, do you want to give that number, like, what could that ROA look like, steady state?
You already asked Ravi for that number. He said he won't give that number.
Fair enough.
Yeah, so I think we've given you enough guidance, and you know that, you know, we don't get too particular on guidance at a segment level. So I think... But there's enough guidance to give you an indication, obviously, and we've indicated at a weighted average level, overall, it will be higher for those reasons.
Fair enough. And, sir, on, basically the LAP segment, over there, the credit costs, since last two years have been, fairly, I would say, closer to nil. And of course, we have seen a tremendous improvement in the asset quality also over there. But how long can this, say, a nil kind of credit cost continue in that segment? And, consequently, if, say, it, normalizes over there, how would our overall credit costs could look like, given the mix change also in the picture?
We are pushing Suresh to continue.
So yeah, I think if you can look, see the Stage 3 numbers, it has significantly kind of we have resolved it. That's why currently you look at such a loan losses reversal. But yes, that I think that reversal is kind of is kind of coming down. On a steady state, anything between 25 paise at about 25 paise will be a very good. I think we'll be doing very good. And I think that's our target NC L, that we'll range between that number, between 25- 30 paise.
Yeah. But... And then the question is whether any increase in losses or normalization will be offset by a reduction in OpEx?
One is the OpEx reduction they are planning, and then they are also planning to do income increase through their Micro LAP.
Yeah. So-
So, overall, still the roadmap will be maintained at this level or, yeah. Ravi is just sitting next to me, so definitely it'll be more than this, but it will be maintained, yeah.
...Fair enough. And sir, last question. Can you give us a sense of what's the average tenure of the CSEL and the SME book? The reason I'm asking that is to get a sense of how seasoned right now the portfolio is and the numbers that we are seeing, and, how can it be, relatively when it, further seasons.
The average tenure is around, for CSEL book is, on the traditional book is around 44-48 months.
Okay.
Weighted average will come down because the other products,
Yeah. This is only traditional. 48 is total book. Average is 44.
Lower, no?
Only traditional is 40-
Only traditional. So if you bring it, everything combined will come down to a bit under three years.
Yeah.
Okay.
Some of them are door-to-door, so average will be in the range of around 3 years for CSEL, and in SME it will be around 5-6 years.
Equipment finance we do is close to 5 years in equipment finance. Term loan would be close to 10 years, and supply chain is only 90 days bill discounting. So there are three major products in SME. So this is the tenure .
Okay. And the weighted average tenure, do you, do you want to give out that for SME?
It'll be core[crosstalk]
It will depend on the mix as we keep moving between the products, because as we keep... We have to look at what products we are focusing on. So we will, we will work out with that as we move and develop each of these products.
Fair enough. Thank you for taking my questions, and all the best.
Thank you. Next question is from the line of Pranuj Shah from JP Morgan. Please go ahead.
Hi. Thank you for the presentation. Just two questions from my side. One is just standard coverage on Stage 1 and Stage 2 have reduced. I'm assuming your PD and LGD assumptions have improved. So in that context, do you have or lowering your guidance for credit cost for FY 2025?
So, see, what happens is every year, we have to include the current year PD/LGD and build on that. So as you know, it was little higher during the COVID period. Now, as we are performing better, that this year's contribution comes into play, so that will keep going into it. If we continue to this, maintain this trend, it should, but right now, don't build on, don't count your chickens right.
Got it, sir. But no, as such, credit cost guidance that you would want to provide as of now?
Just the guidance.
Got it. And sir, just one last question was on the SRTO profitability. Like, we have seen new vehicle and also used vehicle prices rise about 25%-50% over the last one year. So, are you seeing, could you just make a comment on how you're seeing SRTO profitability move about on the overall EMI repayments?
The SRTO profitability is now quite maintained because the Diesel prices are the same level. In fact, it has improved INR 2 for the last year.
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Aman, go ahead.
Yeah. So SRTO, as I mentioned, no, the Diesel prices have improved.
Hello?
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Yeah. So, talking about the SRTO's profitability.
Yeah.
SRTO's profitability is mainly depending on the fuel, consumption, and that is actually the fuel prices have really gone down. Secondly, that SRTO also decided not to go into the heavy commercial vehicle segment of new, and they decided to basically stay in, the intermediary commercial vehicle or the used commercial vehicle. That's the reason we are also focusing used commercial vehicle, light commercial vehicle, but we are not focusing more on heavy commercial vehicle. Because the heavy commercial vehicle is more beneficial to the captive users and, large fleet operators who are getting the GST benefit also. The SRTOs are not getting benefit, but the prices of the vehicles are much lower there. EMI affordability is also good. So that is the difference in the SRTO and the other segment of the customer who are operating in the commercial vehicle segment.
So also the previous SRTOs who used to go for new vehicles are more preferring used. Is that the understanding?
Yeah.
Got it. Thank you, sir.
Thank you. Next question is from the line of Sunil M. Kothari from Unique PMS. Please go ahead.
Thanks for the opportunity. Sir, congratulations for such a wonderful performance during last year and then five, 10, 15 year. Commendable job you are doing. Sir, your view, macro view on the competition intensity by banks, private, public, they are moving inside the country from Tier 2 to Tier 3, Tier 4, Tier 5, and then other small NBFCs and small finance banks. If you can throw some light on your understanding about the intensity of competition will be really helpful.
Yeah. So as we maintained and mentioned in the past also, the banks are more into the top of the pyramid and in the urban market, salaried class and with financial class category of the customers. We are into self-employed category of the customer and Tier 2, Tier 3, Tier 4 town. And as we see the growth coming in the country, economy is growing, the bottom of the pyramid of this category of the cities are also doing better. And small commercial vehicle, light commercial vehicle used, loan against properties, smaller ticket size loan or affordable housing or SME smaller ticket size loan or equipment finance or business loan, consumer loan, those things are growing better, where which is basically being funded still by the NBFC and the smaller finance companies.
It's going to be continued because we are a developing country and this, developing to developed country will take another 20 years for reaching to that level. We will be definitely growing, because of the opportunity available in the country. The SBPL is another product which is basically providing, funding to the SME segment, small micro-SME segment. If India has to grow, the small, SME has to grow. There are so many, grocers, grocery shops or small, small merchants who are now increasing their sales, but they need, capital, they need funding, which we are providing, and those are actually the, with collateral, secured funding and doing well in the market.
We need to identify such customers, such market, and also ensure that our processes are very clear and we don't get into any kind of, you know, wrong processes while in the process of lending customer. So evaluation of the property, evaluation of the customer, the valuation should be absolutely right, then you can do even self-employed customer who are not in position to produce the income proof, but they are doing better.
Right. Sir, your view on intensity of competition compared to, say, last year or two, do you see now people are realizing that there should be some sanity, sanity in terms of pricing? Because we heard here a lot about, mortgage business getting madness like competition. So what's your view?
There are three situation, no? One is that, like, if the new customer come, then they try to basically do higher LTV and lower pricing and give higher payout incentive to the, the person who is actually sourcing. So we are not into that game, and that is happening more into the urban market, not in the rural market. The rural market challenges are collection, evaluation, process, and people. So our reach is, basically helping us to avoid that competition in the urban market. As far as the competition is concerned, we don't see in our segment competition is that, intensive, because we are more into the middle of the pyramid, into smaller town, with a smaller customer, where our people who are actually working with us for many years are consistently working.
Here, the main challenge is how can you retain and how can you train, and how can you get the job done, without deviating processes, which we are doing it.
Great, sir. Congratulations again and good lots of good wishes. Thank you.
Thank you.
... Thank you. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Yeah, congratulations for good set of numbers. So firstly, on yield side, if we purely look at it in terms of the interest income trend, and you look at the AUM, then it seems there is some, maybe demarcation out there in Q4. Last quarter, you indicated that, we should see some benefit as, marginal book yield is higher, marginal yields are higher than the yield, and we should see some repricing benefit. If you can just help, maybe, how should we look at the, yield trends, so that's the [audio distortion]
So you, you're talking from the Vehicle Finance side or from the overall company side?
No, from overall perspective, if you look at it, because interest income, that number is broadly overall, and
Yeah.
So that's where, yeah.
So it is better to see the page number 18, which is the 10-year sheet which we have given.
Yeah.
Total income to asset is actually 14.4, and our ROA is 3.4. Our peak ROA is 3.7 in 2018, FY 2018, when the income was 14.7, the cost of fund was 7.1, now it is 6.9. It's a similar situation. So ROA was 3.7. So our target is to take 3.4 to 3.5 and 3.7 by increasing the income from 14.4 to 14.7 and improving the OpEx line. So we are more or less very close to the peak number. It's just, the, the OpEx is, 10 bps high, and our, you know, the, the income is 30 basis points lower.
The 30 basis point income, which is lower, is going to come back because we have two types of this. One is fixed and the other are floating. The SME and LAP and HL are, you know, floating, the way the reset has been done. But Vehicle Finance is actually the fixed rate. So it takes two years to basically come back to the peak level of the income line, which is actually now. This year, we are going to get back. So that is what is the, you know, plan, like, how to reach out to 14.7 and deliver 3.7 in next two years' time.
Absolutely. So I agree on overall income side, but there is an element of, fee income led by more of insurance also, which we reclassified last time. So maybe, the income seems to be slightly elevated because of this fee income stream. But if we adjust for that, then the only thing was maybe, overall on the pure, interest income, that seems to be moderating. So that was the question. Yeah, I, I agree completely on the overall, income side because of the fee income pool. Yeah.
No, fee income now gets amortized. It is not like, you know, we get, get them, you know, bulk when we do more disbursement, et cetera. Under Ind AS, it has to be amortized. Similarly, the cost element of that makeup also get amortized. Long time back, when we were in I GAAP, we used to upfront both, that is the fee income also upfronted and the cost also was fully charged up. So, it won't make a big difference. There is no visible shifts in those numbers, so they will run as per the number forthcoming.
Sure. And between fee income and the OpEx, would there be any overlap or reclassification which is leading to both the line items slightly higher this quarter?
Yeah, that is the OpEx relating to the insurance income. Generation comes to us also, no? Because earlier the-
Yeah. So last quarter that was INR 160-odd crore, maybe, I don't know, maybe the exact amount, but, what would be that, quantum this quarter, if we had to look at it?
We can't get into the numbers, because, you know, sometimes some... It all depends on various factors, like some businesses, some locations, people will do multitasking, some there will be specific people, so accordingly, the cost gets allocated. So we can't go too nitty-gritty into that right now.
Sure. Okay, okay. Thanks, and all the best. Yeah.
Thank you.
Thank you. Next question is from the line of Raghav Garg from Ambit Capital. Please go ahead.
Yeah, hey. Hi, thanks for the opportunity. I just had a few questions. First one is just to harp a little bit more on the OpEx line item. Your employee cost growth is about 100%, whereas your employee base has increased only by 20%, which implies steep escalation in salaries. Now, I understand that you would've given incentives as well, but I've been looking at this trend for last three quarters at least, where cost per employee has been increasing at some 90%-100%, sorry, 50%-70%. So how should one read that? That's my first question.
Yeah. See, we have also, during the year, I think somewhere in the middle of the second quarter or third end of second quarter, we shifted a large part of our outsourced employees, which was in a separate company, catering only to us, onto our payroll. So from an outsourcing cost, it moved to salary. So that is one large reason. Of course, the expansion of the various businesses in new geographies and the growth in those divisions have also increased the cost there. This is why the salary cost looks little inflated. The other part, which I said earlier, the insurance part of the cost also comes into the salary cost now, because these employees are also now working under Chola for generating the insurance income.
Okay, thanks. My second question is on the write-offs. So, as per my estimates, I think that comes to about INR 370 crore-INR 380 crores for the quarter, which if I look at as percentage of the opening GNPA, that's about 9%. It's trending higher in last two quarters versus, you know, what we've seen in several quarters previously, around rate of around 5%-6%. So, why is that? Which segment are these write-offs coming from? Would this primarily be the new business segments?
No, it is, I mean, as the business grows, these things will also in absolute terms look like inflated, but as percentages, they are within the numbers which we are targeting. See, we have always indicated or given a sort of a guidance that NCL as a percentage would be in the range of around anywhere between just 0.8%-1.2%. We are at 1.1 right now at the company level, so we are comfortable with these levels. The other thing is that for it is actually consistent from the last quarter itself, the number-
Sorry, I can't hear you. Apologies.
The write-off number is actually same as Q3 actually. It is that same level. And we mentioned that, no? The from Q3 or Q2 level, the write-off in the case of partnership is now into coming in our book. Earlier, it used to be actually netted off against the income line, no? So that is the reason you would expect the write-off is slightly higher. But it is same level as Q2 to Q3, Q4.
Sure, sure. Just one last question from my side on the Home Loan portfolio. So, you know, when I look at last several quarters, your disbursement growth has been pretty high in the quarters where you've expanded the HL branch network pretty significantly. But if I look at last two quarters, the HL network has expanded only by 3%-4% quarter-on-quarter. Does that also mean that your disbursement growth will slow down from, say, current run rate of 24% in the coming quarters or over the next two years? Some color on that would be very useful. Thanks. That's all from my side.
So, for the HL, we see that we'll be better than the expected market growth. Generally, our trend is 14%-17%, the industry average will be at least 25% growth for the Q1. We are expanding the network. The current plan is to sustain and increase the efficiency, because this is a year I want that the OpEx starts to come down, because as a company, we are focused on increasing the efficiency. So we'll be focused on productivity and ensure all the collection team members are in place early in quarters. The second part of the year, you will see it grow towards, we are experimenting the Taluka level exploration. That's Tier 3, Tier 4 rural market.
So we are piloting that project, and we'll see the expansion on that during the second half of the year.
Thank you. Thanks a lot.
Thank you. Next question is from the line of Anurag Mantry from Oxbow . Please go ahead.
Yeah, hi. Thanks for the opportunity. Two questions. One is on the SBPL. So if I heard correctly, I think you mentioned that the cost in this can probably inch up a bit, and that can be offset by OpEx. Just wanted to understand, if you compare, say, your credit cost of, I think 60 basis points over 24 versus Five Star, which is other large listed player in this case. I think there, after 24 credit costs makes 30 basis points. So, I just want to understand the comment of, you know, you think that, why do you think that the credit cost can be significantly inch up a bit? And if you can indicate any range, you think where it can inch up.
And the second question is on the used vehicle side. So over the last year, we've seen that a lot of players have basically been focusing on the used segment post-COVID, including some of the larger banks. So do you see that putting any pressure on maybe used overall, or do you think that the overall pie is expanded, that we said the buying more used?
Okay. So the first question is the SBPL, where as of now, the net credit cost is 0.6%. So we are going to try, we are going to keep it at this level, or slightly it will go up. And at the industry level, one company is basically similar, you know that and we have mentioned that, their credit cost, and we will do better than that, that is for sure. Secondly, you know, in the case of used business, as we mentioned, that our reach is much bigger than the new companies who have started doing it. And all those new companies are actually experimenting mainly in the urban market, where the rates are slightly lower.
But, the majority of the business is happening in the smaller towns, and there the yields are better. And that is the reason at an overall level, we have not seen our used business yields are coming down as of now.
Got it. Thank you.
Thank you. Next question is from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi, good morning. Congratulations on strong performance. I just have one question left. You know, what will be the recent trends in bounce rate and forward flow in CSEL? And is the Stage 2 level there coming down or stabilizing? Just wanted more visibility on the future NCL.
Bounce rate is at around 9%, CSEL traditionally.
Okay. And is the Stage 2 coming off there?
No, Stage 2 is actually both bounce rate and Stage 2 are maintained at the same level. There is no increase in the last three quarters.
... Okay. And just one data, this Micro LAP, we are low ticket, but LAP products within the overall overall disbursement. What has been the trend there?
So Micro LAP is part of the LAP product, and so what is the trend you are asking for? Sorry.
Share in disbursement in India.
It's about currently on a monthly disbursement level. That's about 10%-12% of our LAP disbursement is our Micro LAP disbursement.
Okay, got it. Thank you. Best.
Thank you.
Thank you. Next question is from the line of Bunty Chawla from IDBI. Please go ahead.
Thank you, sir. Thank you for giving the opportunity. Most of the questions has been answered. Just one point. On the slide, you have given the margins improvement on a quarter-on-quarter basis, which is approximately 40 bps. So if we see that has been driven by the yield increment, have we taken any price hike during the quarter, or is it just due to the business mix change? If you can just throw some light on that.
So in the case of Vehicle Finance, we have increased the prices in the month of December across all product segments, and that has helped us to increase the yield further, but that is on the marginal book. In the case-
Both margins also include rate.
So, on the LAP side, we have done both increase in the marginal as well as we have done a price, price reset of INR 0.40, but that's only in the month of March, so, did not have much effect on that. But the primary reason is on the, marginal yield increase.
So can we say, as previously we have shared that cost of funds seems to have been peaked out, and if there is a no rate hike or stability in repo rate, there should be further improvement in the margin, because incremental yield should go ahead because of the rate hike taken?
No, it is possible, but I would right now hold, as I said, that's all that totally put together is what is the improvement in the ROA we are talking about. Let's see, as we progress into the year, whether cost of funds settles down, because, you know, there are other things we have to look at it. As we widen the base for borrowing, that can be incremental cost, like NCD or public debt, et cetera. But we will watch it, and we will... Right now, we don't want to over-promise on those numbers.
As you've given the 15-year data, what we have observed in last 3 years, there has been a decline in the margin. So just need to say that at least we can say sustain at this 7.5% level for a full year basis, at least. If there is no rate hike and all.
Pre-COVID levels. Pre-COVID levels, we will be back to pre-COVID levels.
Okay. Okay, okay, okay. That was very helpful, sir. Thank you. Thank you very much.
Thank you. Ladies and gentlemen, due to time constraint, please limit the question to strictly one question per participant. The next question is from the line of Bhavya Sanghvi from Union Asset Management. Please go ahead.
Thank you for the opportunity, sir. First of all, many congratulations, and, we appreciate the disclosures, and the disclosures on the different businesses. My question is, actually on the geographical expansion. So we've seen that, the new businesses have been, you know, co-located with the Vehicle Finance, branches. So what are we doing to, you know, enhance the capacity, in the branches going ahead, so geographical, you know, expansion itself? And second question would be, on the fee income. So we've seen the continuous, improvement in the fee to assets, as a percentage. So what is the management's, you know, outlook and things that you're doing to improve the fee mix? Thank you.
Okay. So good one, that you know, all the branches are co-located, and whenever the branches are having a constraint in terms of the place, we are actually relocating. So, every year we are doing two things. One, the new branch opening and as well as the relocation of the branches. And we... So almost 20% of the branches are getting relocated because they need more space. We have done that in this last financial year. Also, almost 300 branches basically expanded, you know, that means we have opened up in a new premises which is larger than the existing one. And at the same time, we have opened up new branches close to 300.
We have 545 RLH operational for Vehicle Finance, where we are going to convert them into branches in time to come, once they start hitting the threshold. But now, as and when they start hitting the threshold, we are creating provision for other business line also, because within a year or two years' time, the other business also will start coming. So from the beginning itself, we are trying to basically get bigger premises for the new branches as well.
Got it, sir. Sir, on the fee front, what are the management, you know, taking efforts to enhance this? Thank you.
No, we have been continuously, you know, working on, in, you know, working on the fee side, whether it is a disbursement fee or it is an insurance cross-sell or it is a collection fee. All we are working is a part and parcel of the business, because the business is growing. Obviously the fee part is along with that growing, but in terms of percentage, it is, it is maintained. And as, as we mentioned that it is not that at off basis we are taking the interest. It is not upfront income, we are booking it. It is an amortized fee income which is coming in our-
... Got it, sir. Thank you so much.
Thank you. Next question is from the line of Vikram Subramanian from Marshall Wace. Please go ahead.
Hi, sir. Thanks for taking my question. I just wanted to get some clarification on the overall ACL cover. So, this is something that we've been noticing has been steadily dropping. So now the overall ACL cover is at about 170 bps on the total portfolio. I understand the portfolio quality has been improving steadily and is at a very good stage right now. But, is there any plans to, you know, create some macro prudential provisioning, given we are at, you know, a very good credit cycle, and this is a good time to create some buffers for sometime later when cycle could turn bad?
Also given the fact that 170 basis points seems a bit, you know, low. I just want to know, at what point you might consider creating such a provision? Is it based on, you know, a time frame, or is it based on any early warning signals?
See, the provision coverage is a derived number based on the PD LGDs of the respective products. Now, on top of it, we are also building a macro-based provision requirement. Actually, this time, the macro projections as per, you know, these macro projections are also done by an external consultant, and the macro projections, because the GDP growth and all other factors are positive. So the macro provisions also, we could not, you know, make any, you know, large incremental provisions on that, because we have to be constrained. We are constrained with making provisions within the model. We can't, you know, we can't, on our own, increase it to 2% or 2.5%.
You know, if the portfolio is behaving well, then that is reflected in the PD LGDs, and accordingly, provision is to be made. Only in the period of COVID, we made the management overlay because of the uncertainty in the environment. Unfortunately, Ind AS does not allow us to create incremental provision. Having said that, I want to mention that as compared to RBI, we are ahead of our provisioning norm. We are almost INR 700 crore above the norm. So the portfolio quality is good. The, you know, the NPA numbers are lower, so accordingly, these numbers will come. If you are looking at it on an overall business, because Stage 1 and Stage 2 numbers will be drive down because they are the denominators, will drive down this ratio, if my Stage 1 is good.
So it shouldn't be that we should penalize when my Stage 1 is larger and make it like, "No, no, no, my provision coverage is not adequate." The provision coverage is to be looked at on the NPA numbers, which we have maintained at the 45% numbers, which we have increased to 46% or so, which is around the 45%-46% numbers. Which is why they are risk-wise, and we are having adequate coverage.
Sure. That's clear. So no, I also asked because on Stage 1 as well, there seems to be some reduction in coverage. But thanks. Thanks for that answer. That's clear. If I may just, can you give some color on what the current PD and LGDs are for-
No, no, we cannot give those numbers. These are, you know, these are not one single numbers, per se. It's even for every product, there is so much subsegment-wide classifications. The breakup of the segments, we have covered it in the presentation. I think it's there in the ACL policy note, which is on the website.
Sure. Okay. Thanks. Thanks, Arulselvan.
Thank you. Thank you.
Thank you. Next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah, hi, team. Congrats on the quarter. Just one question on the funding side.
Yeah. Hello?
Am I audible?
Hello. Go ahead, yeah.
We cannot hear you.
Is it better now?
Yeah. Go ahead, go ahead.
Yeah. No, just wanted to understand how is the incremental cost of funds, not just from banks, but across all types of creditors, moved over the past quarter, with the risk-weight guidelines? And secondly, is there any cost difference, or rather, how much is the cost difference between securitization and your bank borrowings?
See, it all depends on the nature of asset that gets securitized versus the, you know, bank borrowings and where we give the underlying assets. Both cases, we leverage priority sectors. So if there is a priority sector segment, then there is a benefit of around 25-40 basis points, depending on what sort of priority sector assets we provide. Like, if there is a larger benefit on agri assets and a smaller benefit on M1 category or M2 category of MSME. All this needs to be supported by documents like, land documents for agri, as well as Udyam certificate for others. So there will be differences between each of these lending, or borrowing profiles. Independently, I cannot discuss on the pricing of each, each vertical, because that by itself is a sensitive information, as well as not a publicly available information.
Okay. Okay, fair enough. And just on how incremental cost of funds have trended, say, since November?
No, that's already given, no? We have held, we have brought it down marginally. If you look at the full year, we are at the 6.9% levels, which we have talked about on an AUM basis. At a, at a borrowing level basis, it should be in the range of around 8%.
Okay. So that has not moved up, like, that's not changed really?
Then it will keep moving depending on mix, you know. It's not like if I keep doing more of short-term, long-term securitization, it will move. I mean, you have to look at it... I think the amount of discussions we are giving by itself is quite exhaustive, so I think, you know, we can't extend this beyond this.
Okay, fair enough, sir. I'll get back in the queue. Thank you.
Thank you. Yeah, please. Thank you.
Thank you. Ladies and gentlemen, that was the last question of the day. I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities for closing comments. Over to you, sir.
For giving us an opportunity to host the call. Thank you very much, and have a nice day.
Thank you.
Thank you. Thank you.
Thank you. On behalf of Kotak Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.